Key Points
- Natural gas is currently pulling back from six-session highs.
- Prices have plunged from 2022 peaks and remain in a severe downtrend.
- Spring/summer seasonality may have already begun.
- Thursday’s EIA NG underground storage report will bring significant volatility to the market.
Beginning with Russia’s invasion of Ukraine, natural gas (NATGAS, NG) has been one of the most challenging markets to trade. Manic highs and lows have become the norm for NG, frequently confusing energy traders.
Currently, NG is trading higher on the back of a six-session winning streak. At press time, the tides have turned; prices are off more than 4% on heavy shorting.
Is Selling Season Upon Us?
Conventional wisdom says that the spring and summer months in the Northern Hemisphere are the selling season for natural gas. Why? Reduced consumption, specifically for heating purposes. Natural gas is a commodity, which means the supply/demand dynamic has a huge bearing on pricing. Generally, when supplies fall, prices rise; when supplies rise, prices fall.
For instance, US NG storage levels are typically highest between the end of October and mid-November. This suggests that consumption lags in the summer months, allowing NG stocks to grow. The result is often depressed spring/summer futures and spot market pricing.
Events & Market Drivers
With May rapidly approaching, several market drivers are poised to impact natural gas. First, spring/summer seasonality has the potential to put a ceiling on prices. Although consumption was at record levels in 2023, trends tell us it has a good chance to tick down in the coming months. If correct, lagging consumption is a bearish market driver.
Second, geopolitics. Since March 2022, natural gas has been in a bear market. Prices have fallen dramatically from Russia/Ukraine panic highs, plunging to post-COVID lows. However, the market has seen a surge over the past week amid Israel/Iran escalation. Any major escalation is likely to boost NG prices, at least on an intraday scale.
Trading The Natural Gas “Middle”
Since the chaos of Tuesday, 16 April, NATGAS has been on a significant bull run. As pictured on the chart (Pepperstone, Spot NATGAS CFD), the price has rebounded from a hard test of the 1.600 natural support zone.
The long-term trend is still exceedingly bearish, but prices are approaching an established support area between 1.562 and 1.613. If nothing else, bidders have repeatedly defended these sub-2.000 levels over the past six weeks.
On the daily chart, the current 62% Fibonacci Retracement (1.719) and 78% Fibonacci Retracement (1.673) are positive bullish entries. These deep retracement levels target the “middle” of the daily trend’s range. Preference is given to the 78% retracement level as it falls closer to 1.600 natural support.
For natural gas traders, Thursday’s EIA storage report is worth noting. This event typically brings huge participation and can sway the NATGAS market dramatically. If you’re trading NG, mark this event on your economic calendar.
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Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
